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types of market segmentation

7 Types of Market Segmentation That Your Business Can Use

It’s no secret that market segmentation has several benefits for your business. Fun fact: Creating segmented email marketing campaigns can increase your revenue by up to 760%.

How do you know which types of market segmentation to employ in your business? And how do you use the different market segmentation methods?

If these are some of your burning questions, you’re in the right place, as we’ll dive into the following topics:

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What is market segmentation?

Market segmentation is a tactic that groups your customers or prospects based on shared characteristics. It’s a marketing strategy that aims to divide your broad target audience into smaller segments so you can craft tailored campaigns for each group.

7 types of market segmentation

There are seven common types of market segmentation:

  1. Demographic segmentation
  2. Psychographic segmentation
  3. Geographic segmentation
  4. Behavioral segmentation
  5. Benefit segmentation
  6. Life stage segmentation
  7. Firmographic segmentation

Here is a summary of these market segmentation methods:

Type of market segmentation Answers the question Sorts your customers according to
Demographic Who are your buyers? Age
Marital status
Education level
Psychographic Why are they buying? Values
Social status
Geographic Where are your buyers from? Where they live, work, travel, or shop
Behavioral How are they buying? Buying habits
Browsing habits
Buying history
Interaction with your brand and website
Customer satisfaction
Benefit What are the benefits that entice your buyers? Perceived benefits they’ll get from your offering
Life stage Which life stage are your buyers in when they purchase? Life stage when they convert into a customer
Firmographic What types of businesses are buying? Industry
Market size
Number of years in business
Customers and products
Number of employees
Average sales cycle

Let’s go through each one in more detail:

1. Demographic segmentation

A simple yet effective market segmentation method, demographic segmentation aims to sort your audience based on objective data, such as:

  • Age
  • Gender
  • Marital status
  • Income
  • Education level
  • Profession

Answering the question “Who are your buyers?”, demographic segmentation is typically combined with other types of market segmentation to create buyer personas. When combined with other market segmentation methods, demographic segmentation enables you to draw out valuable insights to:

  • Understand your target market
  • Identify which products or services they will likely buy
  • Discover the best marketing channels to use when reaching them
  • Understand the marketing messages that resonate with them

2. Psychographic segmentation

“Why are your customers buying?” This is the question that psychographic segmentation aims to answer. It sorts your prospects and customers according to their motives and preferences, uncovering why they are buying — or not buying — your products or services.

Unlike demographic segmentation, psychographic segmentation is subjective, as it tries to find out your audience’s:

  • Values
  • Aspirations
  • Opinions
  • Preferences
  • Lifestyle
  • Social status
  • Interests

You can gather your audience’s psychographic data using your martech stack. You can also conduct surveys, interviews, and focused group discussions, asking open-ended questions to draw insights.

Do different prospects from the same demographic segment respond differently to your ads? Use psychographic segmentation to boost your demographic segmentation. They may have the same age, gender, and marital status, but may not share the same aspirations.

For example, let’s say you own a car dealership. Some members of your demographic segment value their image and their appearance. As a result, they respond well to your ads touting your unique exterior design.

Meanwhile, some of your prospects within the same demographic segment prioritize their family above all else. As a result, they express interest in your brand when you showcase how your car’s safety features protect families during a long drive.

3. Geographic segmentation

Geographic segmentation is sorting your customers and prospects according to where they:

  • Live
  • Work
  • Travel
  • Shop

It makes sense to group your audience according to geography because of location-based factors like:

  • Climate
  • Culture
  • Language
  • Urban or rural setting
  • Weather

Geographical segmentation also works if you have multiple brick-and-mortar locations. If you have campaigns focused on a particular branch, geographical segmentation will come in handy to target your nearby prospects or customers who have previously bought from the branch.

You can also use geographical segmentation with other market segmentation methods like psychographic segmentation. Doing so can improve your marketing messages or ad targeting.

4. Behavioral segmentation

Behavioral segmentation asks, “How are your customers buying from or interacting with your business?” With behavioral segmentation, you group your customers based on how they interact with your business, website, or app.

You can gather your prospects and customers’ behavioral data through your website analytics or customer relationship management (CRM) software. Here are some of the behaviors you can look at:

  • Buying habits
  • Browsing habits
  • Buying history
  • Interaction with your brand and website
  • Customer satisfaction

5. Benefit segmentation

“What are the benefits that entice my buyers?” This is the question that benefit segmentation answers. Benefit segmentation categorizes your audience according to the perceived value they’ll receive from your offerings.

For example, let’s say you own a yoga studio. Some of your customers or prospects sign up for your classes because your classes have improved their mobility and flexibility. Meanwhile, others are drawn to your business because your staff provides excellent service, always ready to answer their questions.

6. Life stage segmentation

What are the significant milestones in your customers’ lives when they purchase from you? Life stage segmentation classifies your buyers based on their life stage when they buy from you. This market segmentation type lets you improve your campaign timing and marketing messages.

For example, let’s say you’re a realtor. You may have prospects who are attending college and looking or an apartment. Another segment you may have is a newly married couple in the market for their first home.

7. Firmographic segmentation

Suitable for business-to-business (B2B) companies, firmographic segmentation answers the question, “What types of businesses are purchasing?”

Firmographic segmentation segregates B2B customers according to their shared characteristics, giving you an idea of your audience’s strengths and their needs:

  • Industry
  • Location
  • Market size
  • Number of years in business
  • Customers and products
  • Number of employees
  • Average sales cycle

4 benefits of market segmentation

Taking the time to segment your audience will provide the following benefits to your business:

  1. Better ad campaign performance: Because of market segmentation, you gather customer data that informs you of your customers’ needs, preferences, and buying habits. As a result, you can tailor marketing messages and improve your ads’ targeting.
  2. Personalized communications: Market segmentation lets you create personalized experiences for your audience, resulting in greater customer retention and brand loyalty.
  3. New market identification: With the help of market segmentation, you can understand your target market’s behavior and pain points. As their behavior and interests change, so too must your product development and marketing strategy. The result? You get to identify new markets and opportunities.
  4. Increased revenue: Because market segmentation lets you provide personalized experiences among your audience and improve your ad targeting, you’re on the way to increasing your revenue and customer retention.

How to choose the right type of market segmentation

There’s no one-size-fits-all market segmentation type for all businesses. The best market segmentation strategy depends on your business and your objectives.

Here are some guide questions that will help you choose the right type of market segmentation for you:

  1. What are the characteristics of your target audience?
  2. Based on your data about your target audience, what are the most important characteristics you should use to group your audience?
  3. What are the benefits of your products?
  4. Based on your products’ benefits, who will need them the most?

Pro tip: If you have multiple products or services, create buyer personas for each offering. Buyer personas are semi-fictional representations of your customers that will purchase your products or services.

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Reap the benefits of market segmentation

Market segmentation lets you sort your audience into smaller segments and craft more effective campaigns for each group.

If you need help gathering and analyzing customer data to start your market segmentation strategy, consider teaming up with WebFX. We’re a full-service digital marketing agency with over 25+ years of experience.

Our team of 500+ experts is excited to understand your business and target audience and create the right market segmentation strategies for you. In addition to harnessing our team’s expertise, you also get to use our proprietary growth platform, MarketingCloudFX (MCFX). MCFX houses all your customer and prospect data so that you can analyze their interactions with your business.

Contact us online or call us at 888-601-5359 to speak with a strategist about our digital marketing services!

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